Woolworths faces WalMart-type growing pains

Woolworths
chief executive
Michael Luscombe
has likened the growth challenge facing Australia’s largest retailer to that of WalMart, saying Woolworths may need to expand offshore to maintain its sales record.

Mr Luscombe said yesterday that growth from Woolworths’ existing businesses and new ventures such as hardware would enable it to deliver superior shareholder returns for the next five “or more" years.

“Going past that, it becomes more challenging," he told business leaders at a luncheon hosted by the Australia Israel Chamber of Commerce.

“With $50 billion in revenues, we actually have to grow by the size of a Big W business every year – that’s the challenge that WalMart has," he said. “WalMart has to grow almost by a Woolworths every year.

“So the challenge is to make sure we [expand] in a way that makes sure we don’t risk what we’ve built over 85 years."

Woolworths is looking for growth opportunities locally and overseas. It hopes to eventually increase its 10 per cent stake in New Zealand’s
The Warehouse Group
to at least 51 per cent and has been searching for suitable acquisitions in North America.

It is also keen to expand in India when restrictions on foreign retailers are relaxed.

“What we needed to do was make sure we were kitted out to make sure we could play on a world stage . . . I believe we now have that ability," he said.

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Mr Luscombe flagged expansion in online sales. Online grocery sales are expected to almost double by the end of this year, Dick Smith’s online sales are growing at more than 10 per cent and liquor chain Dan Murphys will have an online presence next year.

Woolworths is also drilling down into its cost base to reduce the cost of doing business and lift margins in the face of low food price inflation, higher interest rates, renewed competition and the absence of fiscal stimulus spending.

Mr Luscombe said the absence of stimulus spending was unlikely to wash out of the economy until October or November and had prompted retailers to redouble their focus on costs.

“This year when you look at the numbers against last year’s they’re looking not so great, but when you look at the volumes underneath and market share we’re very doing well," he said.

Last month, Woolworths reported its lowest quarterly sales growth since 2004 and cut its full-year sales growth forecast for the first time in six years.

"For us, the challenge is to make sure our model is robust," Mr Luscombe said.

“We continue to fine tune our business and that’s what we’ve been doing for the last eight to 12 months because we recognised we were going to have this challenge."

The retailer plans to reduce the size of printed supermarket dockets for a $1 million annual saving, issue electronic receipts for petrol and grocery purchases, and reduce toner costs by 50 per cent and paper costs by 30 per cent by changing fonts. Energy costs will fall as part of Woolworths’ sustainability program, which aims to cut carbon emissions by 40 per cent by 2015.